Slide 1: Encore Capital Group, Inc. Q2 2013 Earnings Call
Encore Capital Group, Inc. Q2 2013 EARNINGS CALL Exhibit 99.1
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not historical facts, including, most importantly, those statements preceded by, or that include, the words “will,” “may,” “believe,” “projects,” “expects,” “anticipates” or the negation thereof, or similar
Slide 3: Encore Continued Its Strong Performance Across All Key Financial Metrics
Estimated Remaining Collections of $2.7 billion ENCORE CONTINUED ITS STRONG PERFORMANCE ACROSS ALL KEY FINANCIAL METRICS Adjusted EPS* $0.85 Collections $278 million Adjusted EBITDA* $177 million Cost to Collect** 38.8% * Please refer to Appendix for reconciliation of Adjusted EPS, Adjusted EBITDA,
Slide 4: We Made Several Important Strategic Moves
WE MADE SEVERAL IMPORTANT STRATEGIC MOVES Asset Acceptance Largely satisfies our 2013 purchasing goals Better returns than we would have achieved in the market Cabot Credit Management Leading player in the UK debt recovery market Pent up supply expected to come to the market over the next 2-3 years
Slide 5: Our Capital Deployment Was Very Strong
OUR CAPITAL DEPLOYMENT WAS VERY STRONG
Slide 6: Which Led to Significant Growth in ERC
WHICH LED TO SIGNIFICANT GROWTH IN ERC
Slide 7: Executing on Our Plan for a Seamless Integration With AACC
Retention Agreements Synergy Identification Integration Planning Call Center Rationalization Support Function Rationalization Law Firm Management Internal Legal Platform Integration Finance Integration HR Integration Collections Agency Rationalization WE ARE EXECUTING ON OUR PLAN FOR A SEAMLESS INTE
Slide 8: Propel Continues to Grow and Contribute to Encore
PROPEL CONTINUES TO GROW AND CONTRIBUTE TO ENCORE Q3 & Q4 - growing operating income $60 million capital deployed Q1 & Q2 - heavy marketing expenditures
Slide 9: On July 1st, We Closed the Cabot Credit Management Transaction
ON JULY 1 ST , WE CLOSED THE CABOT CREDIT MANAGEMENT TRANSACTION Pent up supply from issuers in the UK is expected to come to market over the next 2-3 years Expect to leverage Encore’s expertise in secondary and tertiary collections Developing a plan to utilize Encore’s India operational capacity du
Slide 10: Many Developments on the Regulatory Front
THERE HAVE BEEN MANY DEVELOPMENTS ON THE REGULATORY FRONT Office of the Comptroller of the Currency (OCC) Consumer Financial Protection Bureau (CFPB) Statement on Oversight of Debt Collection and Debt Sales Oversight of original issuers Sample letters to assist consumers in collection process
Slide 11: Encore Is Well Positioned to Maintain Momentum and Deliver Top Quartile TSR
Management Team • Learning Organization • Principled Intent Growth, Margin Expansion, Free Cash Flow, PE Multiple Expansion Top Quartile Total Shareholder Return ENCORE IS WELL POSITIONED TO MAINTAIN ITS MOMENTUM & CONTINUE DELIVERING TOP QUARTILE TSR
Slide 12: Detailed Financial Discussion
Detailed financial discussion
Slide 13: Purchase Price Allocation for AACC
Purchase Price Allocation WE HAVE PRELIMINARILY COMPLETED THE PURCHASE PRICE ALLOCATION FOR AACC Cash $316,485 Stock 62,352 Total $378,837 Cash $23,156 Investment in receivable portfolios, net 381,233 Deferred court costs, net 6,141 Property plant and equipment, net 11,003 Other assets 19,629 Liabil
Slide 14: Despite Low Purchasing in Q1 and Q2, Collections Were Strong
DESPITE LOW PURCHASING IN Q1 AND Q2, COLLECTIONS IN THE QUARTER WERE STRONG
Slide 15: Strong Collections Led to Solid Revenue Growth
STRONG COLLECTIONS LED TO SOLID REVENUE GROWTH Revenue From Core Collections
Slide 16: Continue to Make Improvements in Our Cost to Collect
WE CONTINUE TO MAKE IMPROVEMENTS IN OUR COST TO COLLECT Overall Cost to Collect* Site CTC* * Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for definition of Adjusted Operating Cost.
Slide 17: Cost to Collect in Internal Legal Is Declining
AFTER SEVERAL QUARTERS OF INVESTMENT, COST TO COLLECT IN INTERNAL LEGAL IS DECLINING * Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for definition of Adjusted Operating Cost.
Slide 18: Collections Growth and Cost Improvement Led to Improved Cash Flows
COLLECTIONS GROWTH AND COST IMPROVEMENT LED TO IMPROVED CASH FLOWS Adjusted EBITDA* * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP
Slide 19: Without One-Time Expenses, EPS Was Strong
WITHOUT THESE ONE-TIME EXPENSES, EPS WAS STRONG
Slide 20: Convertible Note Offering on Favorable Terms
7 years 3% $115.0 million $35.0 million $22.5 million $172.5 million $45.72 $61.55 ON THE FINANCING FRONT, WE COMPLETED A CONVERTIBLE NOTE OFFERING ON FAVORABLE TERMS Term Coupon Convertible Terms Initial Offering Size Additional market interest Underwriters’ Overallotment Total offering Conversion
Slide 21: Substantially (1.9x) Over Collateralized on Our Debt
WE CONTINUE TO BE SUBSTANTIALLY (1.9x) OVER COLLATERALLIZED ON OUR DEBT Estimated Remaining Net Collections ($M, Q2 2013) * Net Debt = Total Debt (Excluding Propel Facilities plus convertible debt discount) minus Cash ** DTL = Deferred Tax Liability Gross ERC Cost to Collect at 30% Tax Net ERC Net D
Slide 22: We Continue to Expand Our Credit Facility
WE CONTINUE TO EXPAND OUR CREDIT FACILITY TO SUPPORT OUR GROWTH
Slide 23: Encore's Long-Term Prospects Continue to Be Favorable
ENCORE’S LONG-TERM PROSPECTS CONTINUE TO BE FAVORABLE Operating Results & Deployment Operating results and deployment continue to be strong Liquidity & Capital Access Strong liquidity and access to capital enhance our ability to take advantage of market opportunities Solid Cash Flows As we build ERC
Slide 24: Appendix
APPENDIX
Slide 25: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES This presentation includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included information concerning Adjusted EBITDA
Slide 26: Reconciliation of Adjusted EPS to GAAP EPS
RECONCILIATION OF ADJUSTED EPS TO GAAP EPS
Slide 27: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended RECONCILIATION OF ADJUSTED EBITDA
Slide 28: Reconciliation of Adjusted Operating Cost to GAAP Operating Cost
Three Months Ended June 30, 2013 Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Three Month Ended RECONCILIATION OF ADJUSTED OPERATING COST GAAP total operating expenses, as reported $126,238 Adjustments: Stock-based compensation expense (2,179) Tax lien b